How the digital economy narrows regional social disparities: mechanisms and evidence from Chinese cities

The widening gap in social development across regions poses a critical challenge to achieving inclusive growth in emerging economies. This study investigates whether and how the digital economy can act as an equalizing force, promoting shared prosperity. Using a balanced panel of 268 Chinese cities from 2003 to 2020, we construct a multidimensional digital economy index through the entropy method and apply an Instrumental-Variable (IV) approach based on historical postal network density to address endogeneity. The results show that digitalization significantly reduces regional social disparities – particularly in western cities – by strengthening fintech inclusion, improving rural living conditions, and enhancing urban innovation capacity. Robustness tests with alternative indicators, subsample analyses, and policy-control variables confirm the stability of the findings. Methodologically, this paper adds value by integrating entropy-weighted digital measurement with IV-based causal inference; conceptually, it advances the understanding of digital transformation as both a driver of productivity and a social equalizer. Policy-wise, the findings suggest that targeted investment in digital infrastructure, inclusive finance, and human-capital development is essential for aligning digital strategies with sustainable and regionally balanced growth. First published online 8 June 2026